Thursday, 8 August 2013

ENGLAND: Church of England & Loan Sharks

The UK's thriving payday loan sector is in hot holy water. The new head of the Church of England, an 11-year oil-industry veteran, is hoping to undercut the business by forging ties with credit unions to offer better interest rates to the poor.

The Church of England has made a former oil industry executive its new leader. He now aims to defuse the conflicts between religion and the financial world. The working meal in mid-July wasn't exactly exemplary for a "church for the poor." The menu consisted of swordfish carpaccio, pasta with prawns, tuna steak, semifreddo, fresh fruit and coffee. Nevertheless, the two church leaders, who had taken office within only two days of each other, quickly came to an agreement.

Anglicans and Catholics alike, said Pope Francis, should give "a voice to the cry of the poor, so that they are not abandoned to the laws of an economy that seems at times to treat people as mere consumers."

This well-intentioned statement could have also come from his counterpart, Archbishop of Canterbury Justin Welby, since March the head of the Church of England and supreme spiritual leader of about 80 million Anglicans worldwide. Welby, 57, has addressed issues of justice in capitalism ever since he was a theology student, and he rewrote his doctoral thesis into a treatise that poses the question: "Can Companies Sin?"

Of course they can. Unlike his predecessors, Welby can draw on his own experience to answer such questions. Before beginning his church career, Welby worked for 11 years as a financial manager in the oil industry: five years at Elf Aquitaine in France, followed by six years in London and, most recently, with Enterprise Oil, a production company that is now part of the Shell conglomerate.

The archbishop doesn't shy away from naming the sinners in the world of business. In the same week in which Pope Francis, speaking in Rio de Janeiro, sharply criticized the "cult of money," Welby took aim at an industry that is currently doing very well in the United Kingdom, where wages are falling and social services have been slashed: the shady business of payday loans.

Payday lenders like Wonga, Speedy Cash and Quick Quid are increasingly lending small sums of money for a few days or weeks at interest rates that, when extrapolated onto a full year, can exceed 5,000 percent. Welby calls the practice "sinful" and "immoral."

In a meeting in late July with the head of one of the money-lending companies, Errol Damelin of Wonga, Welby reportedly said: "We're trying to compete you out of existence. "It's the kind of language that is understood in the financial world of London. Some 2,000 years after Jesus drove moneychangers and lenders out of the temple, Bishop Welby is inviting them back in. The Church of England, says Welby, has "16,000 branches in 9,000 communities," which he wants to open up to credit unions so that they can issue short-term loans to the needy at far more moderate interest rates.
Cutthroat payday lenders like Wonga are unlikely to be overly daunted by bankers in the vestry. The formula for success at the controversial companies is that they can provide a credit decision within minutes after combing through all the information about the applicant that can be found online.

Credit unions aren't nearly as fast. In 2011, the payday-lending industry lent the equivalent of €2.5 billion ($3.3 billion) -- in some cases to customers who could no longer qualify for credit with regular banks. Still, less than 10 percent of borrowers defaulted on the loans.

In contrast, British credit unions, which have traditionally been the banks of the poor, have only lent about £605 million (€700 million or $930 million) to their customers. Most suffer from a cumbersome bureaucracy and laws limiting the maximum interest rate on short-term loans to 26.8 percent. As large as this number sounds, even Bishop Welby admits that credit unions would have to charge rates of 70 to 80 percent for these types of loans so that high processing costs wouldn't eliminate their profits.

Now members of the coalition government want to examine how they can "work together to ensure credit unions can provide strong competition and a viable alternative to payday lenders," said British Secretary of State for Business, Innovation and Skills Vince Cable.

The proposal to tie the credit unions to the church is only Welby's most recent attempt to defuse the natural conflict between God and Mammon, the New Testament personification of greed, as well as to influence the reform of the British banking sector. Welby was also a member of the Parliamentary Commission on Banking Standards and helped develop its recommendations. Under those recommendations, bankers could go to prison for "grossly negligent behavior," and financial managers would have to wait up to 10 years for their bonuses to ensure that they had truly earned them.

But the financial angels in the Anglican Church are also not infallible. Less than 24 hours after Welby's declaration of war against loan sharks, the Financial Times revealed that the church's pension fund had a small amount of money, £75,000, indirectly invested in Wonga.